The Greek debt crisis is spinning out of control. The country is in desperate need of credit but foreign investors are ever more wary of providing loans. Standard and Poor’s downgraded the sovereign debt ratings for not only Greece but Portugal as well on Tuesday, citing weak macroeconomic structures, basically degrading the countries to junk status on par with Third World states. Money is available from the EU and the IMF but analysists worry whether those loans can ever be repaid.

Shockwaves from Greece’s predicament have hit as far as East Asia where the Australian and Japanese stock markets plunged into the red over worries about the country’s ability to service its debt. The euro dropped to a one year low against the dollar. Oil prices extended losses, sliding to near $82 a barrel Wednesday amid concerns that European debt crises might imperil the global economic recovery and hurt demand for crude oil.

The downgrades came after Greece announced last week that it would be forced to tap into the €45 billion aid fund sponsored by the European Union and the International Monetary Fund. European leaders reached compromise on this arrangement last month after Germany objected to an outright bailout. France and Italy led the effort for an exclusively European rescue operation, fearing that interference from the IMF would diminish the union’s economic stability. Italian prime minister Silvio Berlusconi even warned that if Europe failed to deliver, it had no right to exist at all.

There is further discord over the future of the Stability and Growth Pact. Berlin wants tougher sanctions for members that violate European budget rules, including the ability to expel them from the eurozone. Brussels would rather be more involved in countries’ budgeting from the start in order to prevent, not punish, excesses. Some are already interpreting this as the beginning of the end for all of the European Union — an exaggeration of course, though it painfully demonstrates a lack of credibility on the part of the EU when it comes to containing its economic troubles.

Chancellor Angela Merkel has demanded that Greece come up with tougher austerity measures before the EU and the IMF plough in billions of euros. Investors fear that the Greek government will be unable to deliver with trade unions already taking to the streets to protest against any shortening on entitlement programs.

Worries about the scope of public debt in Europe first surfaced in February when The New York Times revealed that Wall Street firms had helped keep countries’ mounting debts, Greece’s included, off the books for many years. British economic historian Niall Ferguson warned at the time that the contagion would spread to Ireland, Portugal, Spain and possibly Belgium and Italy. He predicted that markets would wake up, realizing that these eurozone members’ plunging into the red in the wake of the financial crisis “were not credible fiscal policies.” Today, that’s what the markets did.

Ferguson also noted that “in terms of the size of its debt,” the United States were not all too far behind Greece. It would have great trouble, he said, to get back “into any kind of balance” in the foreseeable future.

Even some economists on the left appear to realize finally that deficit spending is not a game that can be played indefinitely. Simon Johnson for instance, who is convinced that banks are to blame for the crisis and ought to be broken up, understands that fiscal irresponsibility lies at the heart of Greece’s woes. Nonetheless, he seems to believe that it is up to the rest of Europe to “restructure government debt in an orderly manner,” however that may come about.

Johnson is not the first to suggest that the eurozone as such is to blame. Greek prime minister George Papandreou chastised his colleagues in February for supposedly turning his country into “a laboratory animal in the battle between Europe and the markets.” That remark did not inspire a particular willingness on the northern euro countries to come to Greek’s rescue.

Economist Paul Krugman similarly blamed the “arrogance” of the European political establishment which allegedly “pushed Europe into adopting a single currency well before the continent was ready for such an experiment.” Deficit spending didn’t matter much, he argued; the inflexibility of the euro was to blame. In April he reconsidered, recognizing that fiscal irresponsibility was part of the problem before finding the real fault with deflation or “excessively low inflation.” Evidently, Krugman still won’t dare admit that spending more and more isn’t always a smart thing to do.

European and IMF officials are currently hard at work convincing the German cabinet to agree to the multibillion euro relief effort. European Commission President José Barroso reassured bond markets in Tokyo that help is underway. “The commission expects this work to be finalized in the coming days,” he said. “In my mind, there’s no doubt Greece’s needs will be met in time.” The German finance minister Wolfgang Schäuble meanwhile tried to prevent the panic from engulfing all of Southern Europe, declaring that Greece’s budget problems “are not at all comparable” with the market pressures on Portugal and Spain.